Cisco (NASDAQ:CSCO) has been dead money for a long time. Everyone wants to know why. They blame the technology mix. They blame the management.
But this is the same technology mix and management that made Cisco dominant in the 1990s. So what's the real problem?
It's the customer mix.
Back in the 1990s Cisco was mostly selling to Internet Service Providers (ISPs) or enterprise customers who were building out their own networks. These customers cared about speeds, feeds and price. They compared what Cisco had to what competitors had, and they made a choice.
Back then telcos or carriers (whatever you wish to call them) were buying most of their gear from three companies – Lucent, Nortel and Alcatel. Sometimes Siemens (SI). Lucent and Alcatel (ALY) are now one flailing company, and Nortel is out of business. Siemens is growing, but doesn't advertise itself as a telecom supplier any more – for good reason.
Instead, carriers are buying gear from Cisco. These are big contracts, and Cisco has been happy to get them.
That's the mistake.
Ever since I started as a reporter in the late 1970s, carriers have not been in the business of abundance, but scarcity. Rather than putting lots of new capacity in the market, their play has been to put out as little as possible, and squeeze as much profit as possible from each dollar of investment.
More important they don't buy the way an ISP or enterprise buys. They have a process. It's a contracting process. It is, in the end, a political process. And it goes on forever.
Carriers seek information, they seek proposals, they make comparisons, they wait and wait some more. You 'd might as well be selling to the government. Many carriers, around the world, are either owned by or controlled by governments to this day. Nearly all are heavily regulated.
All those costs have to, in time, come out in your pricing, and in the design of your company. You have fewer engineers, more salesmen. You have fewer repairmen and more fixers. Higher costs across the board, costs that come back to bite you when you're then trying to sell to an ISP or enterprise customer, who can choose from among suppliers who aren't paying those costs.
If I were John Chambers, I would split all carrier sales into a new unit with its own profit-and-loss statement, and shift all costs that involve carriers in any way onto that unit. I can do that now because carriers have few choices – they've killed most of their other ones.
And then I would focus on what enterprise customers want, what competitive ISPs want. I would make the rest of the company as lean as possible, offer rock-bottom prices and cutting-edge technology. And I would make that area the focus of all my efforts.
Until Cisco gets the carrier millstone off its neck, in other words, it will flounder. If it doesn't get that millstone off its neck, it will wind up like Nortel. That's what the markets are telling Cisco. Is there anyone left who can hear them?
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.